| 1.98 | Unnamed: 1 | Unnamed: 2 | Unnamed: 3 | Unnamed: 4 | Unnamed: 5 | Unnamed: 6 | Unnamed: 7 | Unnamed: 8 |
|---|---|---|---|---|---|---|---|---|
| a) | Equity Gearing Ratio | DEQUIDT PLC (£000) | RIVA PLC (£000) | MAX MARK 3 | ||||
| (1,000+1,000):1,000 | (400+600):1,600 | |||||||
| 2:1 | -2.0 | 0.625:1 | -1.0 | Ratio must be shown x:1 | ||||
| b) | Justify which company would give the best return to Ordinary Shareholders in periods of high profit. | MAX MARK 1 | ||||||
| DeQuidt plc would give shareholders the best return in periods of high profits because a small percentage of profits would be taken up by paying Debenture finance cost and preference dividends (1), leaving more profit available to the ordinary shareholders (1). DeQuidt plc has the highest gearing. (1) | ||||||||
| c) | DeQuidt plc (£) | |||||||
| Operating Profit | 300000 | Award corporation tax for 1 mark if Debenture finance cost not included. | ||||||
| less Debenture finance cost | 80000 | -1.0 | ||||||
| 220000 | ||||||||
| less Corporation Tax | 55000 | -1.0 | ||||||
| PROFIT FOR THE YEAR AFTER TAX | 165000 | If no preference dividend included award 1 mark for Profit available to ordinary shareholders | ||||||
| Less Preference dividend | 100000 | -1.0 | ||||||
| Profit available to ordinary shareholders | 65000 | -1.0 | MAX MARK 4 | |||||
| d) | Retained Profit | 13000 | -1.0 | Where the Retained Profit figure is implied, award 2 marks to the Ordinary Dividend | ||||
| ORDINARY DIVIDEND | 52000 | -1.0 | MAX MARK 2 | |||||
| e) | Ordinary Dividend per share | 52000 | ||||||
| 2000000 | -2.0 | |||||||
| 0.026 | -1.0 | MAX MARK 3 | ||||||
| f) | Earnings per share | 65000 | ||||||
| 2000000 | ||||||||
| 0.0325 | -1.0 | MAX MARK 1 | ||||||
| Profit for the year after interest and tax – preference dividend may be consequential on (i). | ||||||||
| Number of Shares may be consequential on (iii) | ||||||||
| g) | Market Price per share | £0.03 x 50 | ||||||
| 1.5 | -2.0 | MAX MARK 2 |